Jul 28, 2017
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Sports Direct now owns over a quarter of French Connection

Jul 28, 2017

Sports Direct now owns 27% of beleaguered fashion retailer French Connection with the stake making it the second largest shareholder in the firm.

French Connection

If it acquires just 3% more of the shares, UK corporate rules mean it must launch a takeover offer for the company, although the big blocker if that happened could be founder and CEO/chairman Stephen marks. He still holds around a 42% stake.

Sports Direct snapped up its latest chunk of shares in recent days as London hedge fund Gatemore Capital Management sold its 8% stake and OTK Holding sold its 7%. Those two activist investors have been pushing heavily for a management change at the firm and appear to have thrown in the towel as management resisted such calls.

While they have been unhappy at the retailer’s declining performance and Marks’ determination to continue in his combined chief executive and chairman roles, Gatemore did at least make a 44% profit on its holding in the company.

But Gatemore managing partner Liad Meidar didn’t exit without a final criticism, insisting that the retailer “could have unlocked significantly more value had it made more progress in fixing its corporate governance.” Meidar added that it “remains a glaring example of the shortcoming of the UK corporate governance code, namely, that companies can get away with such violations with zero repercussions to the people at the top.”

That doesn’t seem to have bothered Sports Direct boss Mike Ashley though. This year the firm has been steadily building its French Connection holdings after the initial revelation six months ago that it already had a more-than-11% stake in the troubled business.

But will it want to launch a full takeover offer? While the company remains on the lookout for acquisitions, it has always played down talk of takeover interest in French Connection.

Mike Ashley has frequently bought stakes in other retailers at bargain prices without planning to take full control with recent investments including Game Digital and Findel.

Neither he nor French Connection have commented on his latest buy so it’s unclear whether Stephen Marks is feeling happy about or threatened by his stake-building. Reports say the two have met in recent months but there's no news on what they might have said to each other.

And of course, if Marks can build a working relationship with Ashley - as two slightly maverick CEOs together - he could end up being given a slightly easier ride than of late. If nothing else, he has got two investors who were very vocal in their complaints out of his hair.

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